Using the implied contract analysis employed by Rhee to explain the oppression remedy runs into two fundamental problems. The first is that the oppression remedy is a
Canadian concept. Canadian courts have remarked that the protection afforded by the oppression remedy is a feature of corporate law that is unique to Canada, particularly in reference to the types of parties it can protect.166 The Supreme Court of Canada has gone so far as to cite commentary that describes the oppression remedy as the broadest and most comprehensive shareholder remedy in the world (although it is not limited to shareholders).167 American courts have not been forced to analyze and apply something
164CBCA, supra note 5 s 122. 165BCE, supra note 12 at para 44. 166 Bradley, supra note 31 at 330. 167People’s, supra note 15 at para 48.
quite like the oppression remedy, as it does not exist in American corporate statutes nor American common law. As Rhee’s implied contract analysis was aimed at explaining the duty of care and the business judgment rule in American corporate law, such an analysis did not take into consideration where the oppression remedy might fit into such an understanding.
The second problem, and far more significant, is the content of the expectations created by the oppression remedy, and the parties to whom these expectations belong. The expectations created by the existence of the remedy are that directors (or the corporation) are not to engage in behaviour that amounts to oppression, unfair prejudice, or unfair disregard, in relation to the reasonable expectations of the claimant.168 The content of these expectations is concerned with the relationship between the claimant and the directors (although the corporation itself can also be held liable under the oppression remedy).169 The list of potential claimants is open-ended, and has included shareholders and creditors in the past, but virtually any party that may have reasonable expectations regarding how directors will conduct business can ask a court to grant leave, and a court may do so.170 The oppression remedy is concerned with the relationship between a potential claimant and the directors (or the corporation), while the statutory duty of care and the duty of loyalty are focused on the relationship between the corporation and the directors. Even the duty of care, which can be owed to parties other than the corporation, is still based on the relationship between the directors and the corporation.
The corporate law duty of care and the duty of loyalty both lend themselves to an implied contract analysis because both duties are placed on directors as a result of a voluntary agreement between the directors and the corporation. The oppression remedy does not, however, involve the same two parties. A party can be an appropriate claimant if that party was in a position to have reasonable expectations regarding the behaviour of the directors, and those reasonable expectations were sufficiently thwarted to the extent of, at
168BCE, supra note 12 at para 56. 169CBCA, supra note 5 at ss 241(1-2)
170CBCA, supra note 5 s 238(d); Jassmine Girgis, “Deepening Insolvency in Canada” (Spring 2008) 53
least, unfair disregard.171 Reasonable expectations exist when they are objectively reasonable based on the many factors outlined in BCE, and this can include the nature of the relationship between the claimant and the corporation, in addition to other related relationships.172
With all of these considerations, it is safe to say that, while it may be possible to use an implied contract analysis to determine the terms of the relationship between the directors and a claimant, those terms would not be identical to the terms of the agreement between the directors and the corporation regarding the directors taking on their role. There are many categories of claimant that can make use of the oppression remedy, which makes it difficult to argue that, for all of these categories, the general expectations about the level and type of care expected from the directors will be the same. The expectations relevant to the oppression remedy are to be determined pursuant to the factors in BCE, and are meant to be adaptive to different fact situations.173
The oppression remedy does not lend itself to the same implied contract analysis that would be useful for the corporate law duty of care and the duty of loyalty. The
expectations created by the remedy are concerned with the relationships between a large potential pool of claimants and the directors. Such expectations look to what is expected from directors in regard to the interests of these potential claimants, rather than what is expected from directors in regard to the interests of the corporation.174 With all that said, the implied contract analysis for the duty of care and the duty of loyalty will still have an impact on the practical application of the oppression remedy (covered in section 6.3).
171BCE, supra note 12 at para 56. 172Ibid at para 75.
173Ibid at paras 71-80. 174Ibid at para 45.
6
Applying the modified implied contract approach to the
stakeholder debate in Canada
6.1 The duty of care and the stakeholder debate
For the corporate law duty of care, it is clear that this duty can be owed to stakeholders if such stakeholders have a tort claim against the directors where the corporate law standard is the appropriate standard.175 The fact that such a duty can be owed is not overly helpful
to the stakeholder, however, if the content of the duty does not take into account the interests of the stakeholder. The corporate law duty of care concerns itself with the management of the corporation for the benefit of the corporation; the standard it demands is aimed at ensuring that directors demonstrate a sufficient level of care when making business decisions. While the duty can be owed to various stakeholders, the content of the duty is concerned with protecting the corporation, not stakeholders, and will provide little help unless the interests of the stakeholders align with those of the corporation.
An implied contract analysis helps to frame this problem. The corporate law duty of care is placed upon directors when they agree to take on that role. The terms of this duty of care, particularly in regard to how reasonableness will be determined, can be explained by looking to how risk has been allocated between the directors and the corporation. What is reasonable should reflect the expectations that were created regarding which party would take on the risk for particular failures. Explaining how and why risk was allocated can be accomplished using Rhee’s implied contract analysis, which results in the process-oriented accountability of directors. Such a determination does not look to the expectations of any third-party stakeholder group. Such groups were not parties to the voluntary agreement, therefore their expectations do not constitute or influence the terms that the directors and the corporation implicitly agreed to. Stakeholder groups can still hold directors to this duty of care, assuming a breach of this standard harmed stakeholder groups in the form of a tort, but the interests of stakeholder groups have no place in a
determination of reasonableness under this standard. The nature of the corporate law duty of care does not lend itself to the protection of stakeholder interests, and invoking this duty would be a poor strategy for stakeholders wishing to further their interests, unless those interests align with those of the corporation. Stakeholders cannot require that their interests are owed any protection through this duty that they may be owed because they are not among the parties whose interests the duty is meant to protect, as they were not parties to the voluntary agreement that placed the duty on the directors. What directors do owe stakeholders, as a result of this duty, is to not cause them harm by failing to
adequately care for the interests of the corporation.